IFRS and Collegiate Accounting Curriculum in the US

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ISSUES IN ACCOUNTING EDUCATIONVol. 24, No. 2May 2009pp. 131–139

IFRS and Collegiate AccountingCurricula in the United States: 2008

A Survey of the Current State ofEducation Conducted by KPMG and

the Education Committee of theAmerican Accounting Association

Paul Munter and Philip M. J. Reckers

INTRODUCTION AND BACKGROUND

For many years U.S. GAAP was the most prevalent basis of accounting in the world.However, in recent years International Financial Reporting Standards (IFRS) havequickly emerged as the accounting standards followed by most of the world’s capital

markets. The European Union mandated IFRS adoption for listed companies within membercountries generally starting January 1, 2005. Other major economies, such as Japan, Canada,and Israel, have either followed suit (Israel) or announced plans for implementation of orconvergence with IFRS. The U.S. Securities and Exchange Commission (SEC) also weighedin on the future of IFRS in the United States. In the summer of 2007, the SEC began toconsider the question of whether foreign private issuers could use IFRS without havingto reconcile to U.S. GAAP. That issue was resolved in December 2007 when the SECissued a final rule granting that permission.1 Another issue raised in 2007 was whether U.S.companies might be permitted to use IFRS.2 In August 2008, the Commission furtheraddressed that question by approving the issuance of a proposed roadmap (hereafter ‘‘thecurrent proposal’’) for public comment. In 2007, the discussion was whether U.S. compa-nies would be permitted to use IFRS as an election or option. The current proposal advancesthe idea of potential mandatory adoption of IFRS by all U.S. public companies.

The current proposal has two parts. Part one would allow a small number of U.S. publiccompanies to early-adopt IFRS for years ending on or after December 15, 2009 (i.e., cal-endar year 2009). According to SEC staff estimates, at least 110 companies representingapproximately 14 percent of U.S. market capitalization would be eligible for this early-adoption election. A question raised in the SEC proposal is whether those volunteer adoptersalso would be required to continue to reconcile their IFRS results to U.S. GAAP until the

Paul Munter is a Partner at KPMG LLP, and Philip M. J. Reckers is a Professor at ArizonaState University.1 SEC Release No. 33-8879, Acceptance From Foreign Private Issuers of Financial Statements Prepared in Ac-

cordance with International Financial Reporting Standards Without Reconciliation to U.S. GAAP. Dec. 21, 2007.2 SEC Release No. 33-8831, Concept Release On Allowing U.S. Issuers To Prepare Financial Statements In

Accordance With International Financial Reporting Standards. Aug. 7, 2007.

132 Munter and Reckers

Issues in Accounting Education, May 2009

SEC makes a final determination (sometime in 2011) as to the final roadmap for adoptionof IFRS by all U.S. public companies.

Part two of the proposed roadmap identified four milestones whose progress the SECwould consider in 2011 as vital input in making a final decision (and offer a timeline atthat point) on whether to require all U.S. public companies to adopt IFRS. If adequateprogress is deemed by the SEC to have been made, the timeline outlined in the proposedroadmap might become fixed. The timeline described in the proposed roadmap would beto require IFRS adoption by large accelerated filers beginning with years ending afterDecember 15, 2014, followed by required IFRS adoption by all accelerated filers for yearsending after December 15, 2015. All other filers would be required to adopt IFRS inyears ending after December 15, 2016. Thus, if approved in 2011, calendar-year largeaccelerated filers would have to prepare an IFRS balance sheet as of January 1, 2012, tocomply with the three-year comparative presentation requirement.

The four milestones against which the SEC will judge progress are as follows:

1. Continued improvement of the IFRS body of literature (consistent with an investororientation as the IASB constitution mandates) to be achieved in large part throughcontinued convergence of standards issued by the FASB and IASB. Major projects onwhich progress might be expected could include: revenue recognition, financial state-ment presentation, lessee accounting, post-retirement benefits, consolidation, de-recognition, financial instruments at fair value, and fair value measurement guidance.3

2. Progress on accountability and stability including development of a (regulatory) mon-itoring body4 and a stable funding mechanism (both in process).

3. Continued development of the IFRS XBRL taxonomy to provide enhanced data ‘‘fine-ness’’ (i.e., a greater number of tags more consistent with the U.S. GAAP XBRLtaxonomy).

4. Progress on IFRS-related education and training of investors, preparers, and auditors(i.e., people on the ground now) and progress in incorporating IFRS content into col-legiate accounting curricula (i.e., people on the ground soon).

Thus, one important benchmark for the SEC is the progress being made by educatorsin incorporating IFRS content into their accounting programs. Questions about the currentstate and progress being made in education, however, are not exclusively of interest to theSEC commissioners. Employers of future accounting graduates share this common interestas the answers are germane to planning their CPE programs. Likewise, answers to thesequestions could well serve the CPA Examination Board of Examiners as they plan thetiming and extent of IFRS content on future exams. In addition, the American AccountingAssociation is vitally interested in the current state of accounting education, as this deter-mination influences decisions about how best to facilitate member efforts to enrich edu-cational programs.

SURVEYWith all the aforementioned issues in mind, KPMG and the Education Committee of

the American Accounting Association teamed in conducting a survey of U.S. accountingeducators in the summer of 2008. Five-hundred thirty faculty responded and the summaryfindings of that survey are reported here.

3 These are projects identified by the FASB and IASB for completion by 2011 in ‘‘Completing the February 2006Memorandum of Understanding: A progress report and timetable for completion,’’ September 11, 2008.

4 See ‘‘Constitution Review’’ by the IASC Foundation Trustees, July 21, 2008.

IFRS and Collegiate Accounting Curricula in the United States 133


TABLE 1Timing of Significant IFRS Infusion in Collegiate Programs

In What Year Do You Plan to Incorporate IFRSInto Your Curriculum in a Significant Way? %

2008–2009 22%2009–2010 33%2010–2011 4%Uncertain 41%n 530

A fundamental question for the faculty focused on when the SEC, AICPA Board ofExaminers, and employers can expect colleges and universities to incorporate IFRS intocurricula in a significant way. Table 1 presents faculty responses. Only 22 percent indicatethat significant IFRS infusion can be expected in the current academic year at their schools.Another 33 percent predict significant infusion next year in the 2009–2010 academic year.This leaves nearly half of our schools continuing to explore options or with no clear plansfor implementation.

This is not to say that nothing is being done in the current academic year. Elevenpercent of respondents indicated that their schools will introduce a new IFRS or Interna-tional Accounting course in the current year, and 44 percent indicated initial efforts wouldbe undertaken to integrate some, if not comprehensive, IFRS content into existing coursesthis year. Thus, the preferred path by faculty for IFRS infusion in accounting curricula mayappear to be incorporation into existing courses. However, whether this approach reflects ashort-term necessity or respondents’ perceptions of the ideal approach is unclear. This maybe the case for many, if not most, schools because the flexibility to introduce new coursesin the short run may not be an option. In most universities permission must be obtainedfrom college and university committees and/or administrators before curriculum can berevised to require a new additional course, and this process, of course, takes time. Whenasked to which existing courses IFRS content would be added, 89 percent indicated Inter-mediate Accounting and 72 percent also included Advanced Accounting.

Table 1 suggests that at the point of the survey (Summer 2008) faculty did not con-sensually sense a need for immediate action. Their mental timeline was likely influencedsignificantly by the perceived CPA examination timeline. About half of faculty surveyedexpected comprehensive coverage on IFRS on the CPA examination by 2011 or before, buta nearly equal number did not anticipate comprehensive coverage until 2012 or later. SeeTable 2.

A similar faculty timeline emerges when respondents were asked when one could ex-pect accounting graduates to have comprehensive knowledge of IFRS. Table 3 reportsslightly more than half of our respondents (52 percent) fix that date as 2011 or before, andabout half of our respondents (48 percent) fix the date as 2012 or later. If these predictionsare accurate, will the SEC in 2011 deem adequate progress has been achieved on thismilestone? If not, efforts to accelerate progress may be needed.

Of course, for these predictions to occur, certain efforts need to be undertaken. Onenecessary, although not sufficient, undertaking is the education of faculty on IFRS. Table4 suggests that either limited thought has been given to this effort to date or there is anexpectation that faculty will need to attend to their own education and training courses.Only 16 percent of faculty expect support to be forthcoming from their institutions in the



TABLE 2IFRS and the CPA Examination

When Do You Believe the CPA Examination WillInclude a Comprehensive Coverage of IFRS %

2010 14%2011 34%2012 29%2013 12%2014 4%Later 6%n 500

TABLE 3When Will Students Know IFRS?

Which Graduating Class of Students at Your School Do You ExpectWill Enter the Workforce with a Comprehensive Knowledge ofIFRS? %

Class of 2009 5%Class of 2010 17%Class of 2011 30%Class of 2012 24%Class of 2013 15%Later 8%n 521

TABLE 4Enabling Support from Schools

What Action Is Your School Planning to Take to Prepare Your Faculty toTeach IFRS? %

Undecided, no plans 31%Individual faculty will bear responsibility to re-educate and develop course materials 49%School will provide funding for faculty to attend training sessions and/or acquire

study materials16%

School prospectively will hire new IFRS-ready faculty 2%Other 2%n 521

form of funding. The lack of financial support for faculty may be a consequence of largestate budget deficits in recent years. As states have rolled up large budget deficits, stateuniversity budgets have been pared as well. At many schools, there simply may not be themeans. But, bottom-line, this is a significant issue. This issue may be exacerbated bythe continuing and deepening shortage of accounting PhDs in this country to teach ourstudents, develop or revise curricula, and provide service to the community. There are fewerand fewer faculty to turn to and those willing to lead the effort believe they will have littlesupport internally.



TABLE 6Objectives of Case Studies

%

Case Studies emphasizing technical requirements 63%Case Studies emphasizing conceptual foundations (principles-based logic) 90%n 395

TABLE 5Enabling Support from Others

What Materials Would Support Your Classroom Teaching Approach?(Select All That Apply.) %

Textbooks 89%Case Studies 76%Slide Decks 37%Podcasts 24%Other 12%n 531

Table 5 addresses faculty needs other than funding (for purposes such as travel foreducation) or release time (to develop new materials). That is, what other types of supportwould facilitate infusion of IFRS into accounting curricula. Eighty-nine percent of facultycited the need for updated textbooks. Without updated textbooks, progress will certainly beslowed. At the undergraduate level especially there are few substitutes for a good textbook,if comprehensive treatment of IFRS is an objective. Three out of four respondents (76percent), however, also cited the need for IFRS case studies. Case studies were deemedimportant by 63 percent of respondents for purposes of advancing students’ understandingof the technical requirements of IFRS, but an even greater percentage of respondents (90percent) identified case studies as important in advancing students’ understanding of theconceptual foundations and principles-based logic of IFRS (see Table 6). Individual faculty,as well as large public accounting firms, have developed a significant number of IFRScases, many made available during the summer of 2008. The American Accounting As-sociation today provides a repository for those cases and links to other IFRS related liter-ature at the AAA Commons tab found at the AAA website (aaahq.org) and KPMG has itsown repository of classroom tools at KPMGFacultyPortal.com. The lack of availability ofmany of the cases prior to the fall of 2008 undoubtedly accounts for some of the lackof progress expected in academic year 2008–2009; faculty typically do much of their coursepreparation work during the summer recess. Certainly without release time (support) duringthe academic year, curriculum revisions fall heavily on the unpaid summer months (mostfaculty work on nine- or ten-month contracts). With increasing numbers of cases nowbecoming available, greater progress might be expected in use of these cases in academicyear 2009–2010.

Faculty may be somewhat disappointed, however, with respect to the progress they willfind in textbooks. Table 7 indicates that 32 percent of faculty believe textbooks will includea comprehensive coverage of IFRS in 2009–2010. Another 42 percent believe comprehen-sive coverage will be available not later than 2010–2011. An informal check with authors



TABLE 7Expectations for IFRS COVERAGE in Intermediate Accounting Textbooks

When Do You Believe Textbooks Will Be Available ThatWill Include a Comprehensive Coverage of IFRS? %

2009–2010 32%2010–2011 42%2011–2012 19%2012–2013 4%2013–2014 1%Later 2%n 519

TABLE 8Transitional U.S. GAAP/IFRS Strategy

How Do You Plan to Incorporate IFRS Into Your Curriculum Once It Becomes anAcceptable Reporting Standard for U.S. Corporations? (Select All That Apply) %

Teach IFRS Standards Only 2%Teach IFRS Standards and Conceptual Framework 26%Compare and Contrast IFRS and U.S. GAAP Standards 56%Compare and Contrast IFRS and U.S. GAAP Foundational Concepts 37%Other 3%Undecided 33%n 529

of major textbooks suggests this likely will not be the case. Some new editions of standardintermediate accounting textbooks, for example, will come out in spring 2009 and be readyfor fall 2009 adoption, but those textbooks will not contain comprehensive coverage ofIFRS. And typically, intermediate accounting publishers work on a three-year cycle forfurther updates, although mid-cycle updates are becoming more common. Publishers andtextbook authors walk a very difficult line. U.S. GAAP will not go away for public com-panies for quite a number of years, and there has been little discussion about the standardsthat will apply to nonpublic companies. At the earliest, under the SEC’s proposed roadmap,many public companies would still be on U.S. GAAP in 2014–2015. Textbook authorscannot abandon that market demand prematurely. In addition, at this point, no one expressespositive feelings toward increased page counts in intermediate accounting books. IFRScoverage in intermediate accounting textbooks almost certainly will be progressive butincomplete for several years, which may heighten even more the need for supplementarymaterial in the form of case studies.

Faculty, as well as textbook authors, perceive a significant transitional period. This isevident in Table 8. Fifty-six percent foresee a ‘‘compare-and-contrast’’ approach for IFRSand U.S. GAAP, and 37 percent perceive a similar approach for IFRS and U.S. GAAPconcepts. A significant minority would appear to favor turning exclusively to IFRS stan-dards and concepts as soon as IFRS becomes acceptable. There may be an assumption bythose respondents that market forces will quickly drive most public companies to IFRSonce IFRS is allowed for widespread use. This is a matter of much speculation, of course.



TABLE 10Transitional U.S. GAAP/IFRS Strategy

To What Extent Does Your School Leadership (Those Responsible for AllocatingResources) Understand the Significant Change That IFRS Will Cause Withinthe Accounting Profession? %

Understands the change very well 23%Has some understanding of the change 30%Has little or no understanding of the change 38%Don’t know 9%n 532

TABLE 9Prospective Implementation Impediments

How Challenging for the Academic Community Are theFollowing Aspects of IFRS Curriculum Integration? 1–2 3 4–5

Timing of when to start teaching students IFRS 26% 25% 49%Making room in the curriculum for IFRS 12% 16% 72%Developing curriculum materials for IFRS 6% 15% 79%Getting faculty cooperation 26% 25% 49%Training faculty to teach IFRS 11% 24% 65%

Using a 1–5 scale where 1 means ‘‘Not at all challenging’’ and 5 means ‘‘Very challenging.’’

Finally, approximately one-third of our respondents simply checked in as ‘‘undecided.’’And who is to blame them? Much uncertainty continues to exist, even under the newlyproposed SEC roadmap.

Seventy-nine percent of our respondents identify the development of IFRS materials ashighly challenging, and 72 percent similarly identify making room in the curriculum forIFRS as highly challenging. These then are seen as the two greatest impediments to futureprogress in infusing IFRS into collegiate accounting curricula (see Table 9). From ourearlier discussion, faculty do not see much support coming from within their institutions.Their perceptions are they will have to find the ways and means within themselves to makethe transition, or hopefully find other sources of support (e.g., textbook authors, case writers,and the AAA Commons repository). Our respondents, in large numbers, attribute the lackof internal institutional support to a lack of understanding by administrators of the signif-icance of the IFRS phenomenon (see Table 10). The transitional approach of adding selectedIFRS modules to Intermediate and Advanced Accounting is itself perceived to be problem-atic, as there is arguably no room in existing Intermediate and Advanced Accountingcourses to add more, nor room in undergraduate curriculum to add another course. Formany schools it may prove easier to add a course to their masters programs where collegeand university restrictions are less formidable, but doing so raises the question of appro-priately serving the needs of accounting students who exit after four years with a bachelor’sdegree and enter careers other than public accounting.

Sixty-five percent of our respondents believe training faculty to teach IFRS will behighly challenging, and 49 percent similarly view getting faculty cooperation and timingwhen to start teaching IFRS as highly challenging.



FINAL COMMENTSAvailable evidence thus strongly suggests that the academic community may not be

able to meet the expectations of the SEC. The SEC’s proposed roadmap calls for imple-mentation of IFRS sooner than most faculty expected, and resources are not in place tosupport a rapid and comprehensive implementation of IFRS in collegiate accountingprograms.

The SEC’s proposed roadmap calls for potentially rapid implementation of IFRS byU.S. public companies. Voluntary adoption may be allowed for a significant number ofcompanies as early as those with calendar year 2009 reporting periods. To provide three-year comparative financial statements for issuance of 2009 financial statements would re-quire almost immediate efforts on the part of these companies to transition from U.S. GAAPto IFRS. How quickly other companies will voluntarily switch to IFRS if allowed is un-certain; however, the numbers could be large and the transition rapid. Phased mandatoryadoption by public U.S. companies could begin for 2014 year-ends according to the pro-posed roadmap. Even for those companies, transitions of their accounting systems mustcommence in 2011 to provide for comparative 2012 and 2013 statements to accompany2014 reports. These timelines are not congruent with the prior expectations of the academiccommunity.

Evidence suggests further that it will be very difficult for the academic community torevise plans and infuse comprehensive coverage of IFRS in collegiate accounting curricu-lum by 2011. Significant impediments exist. Among the significant impediments are afaculty shortage, competing market demands for other new curriculum content, no apparentmeans to retrain faculty, and the lack of adequate support from textbook publishers andeducational institutions.

There is an inadequate supply of new faculty graduating from our nation’s doctoralprograms to meet current teaching demands. That shortfall worsens for the foreseeablefuture. This condition has been well documented elsewhere and will not be repeated here.Nonetheless, the faculty shortfall does raise the question of whether there are adequateresources to provide for a comprehensive revision of curriculum and course materials in atimely fashion. Limited faculty resources thus must be directed strategically. Competingwith calls for infusion of IFRS content into collegiate accounting curricula are mandatesfor enhanced coverage of ethics, calls for new coverage of predictive modeling techniques(to support the profession’s movement to fair value accounting) and for forensic auditing,and calls for expanded coverage of internal controls and technology. Institutions thus facethe dilemma of who is to do all this curriculum revision in the face of diminishing ranksof faculty, and faculty face the dilemma of deciding if all this is to be added to the curric-ulum, what comes out to make room for it.

Before faculty can develop new course content, faculty must be retrained. There is notat hand currently a means or method to do so. A comprehensive understanding of IFRSwill not be achieved via a one- or two-hour national webcast. A major, coordinated ef-fort will likely be required. Major public accounting firms are already providing multiple-day training programs for their employees. Faculty will require something comparable.IFRS differs from U.S. GAAP in many ways that will significantly affect education. In fact,there are more differences possibly than many may be currently aware of. These differencesare many and varied. They span the spectrum from terminology differences (whose variedinterpretations nonetheless lead to significantly different accounting—for example, use of‘‘probable,’’ which has a different meaning under IFRS versus U.S. GAAP, or ‘‘technicalfeasibility’’ versus ‘‘technological feasibility’’) to a more ‘‘component orientation’’ appliedto a host of accounting issues ranging from bifurcation of equity versus debt components



of financial instruments and stock awards to depreciation of long-lived asset componentsand related deferred tax provisions. The point is that the retraining of faculty will not betrivial; it will not be easy (even if possible) for faculty to retrain themselves, and yet nomethod has yet to be advanced to address the impediment if meaningful IFRS infusion isto take place on our college campuses.

From our survey data, it is obvious that faculty have high expectations that muchof their retraining and course development will be provided by publishers and authors ofintermediate and advanced accounting textbooks. A review of current textbooks, consid-eration of their three-year update cycles, and understanding of the complex market demandspublishers and authors face will quickly dissuade one of the expectation that textbooks willfill these voids in a timely fashion.

Thus, the profession faces a dilemma and a challenge. The dilemma is that the desiredoutcomes are not going to occur by themselves without intervention. The challenge is whatto do about it, and who is going to step forward and provide the necessary leadership.

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IFRS and Collegiate Accounting Curriculum in the US